What is Stamp Duty?
Stamp Duty is the tax payable to the government for changing the documents that specify who owns a particular property. It is one of the principal costs you will encounter when purchasing a property.
Stamp Duty commenced in the UK in 1694 and, although its scope is not as widespread as it was at that time and a physical stamp is no longer necessary, it is still prevalent today; occurring through a series of stamp acts.
Stamp Duty Land Tax
The Stamp Duty Land Tax (SDLT) is a tax that is charged on land transactions, including the buying and selling of a residential property.
SDLT is a form of self-assessed transfer tax that was introduced by the Finance Act 2003 with effect from 1 December 2003. Although this replaced the previous Stamp Duty regulations, the alterations to Stamp Duty were minimal. Changes do, however, include that a tax return is made out to the HM Revenue & Customs (previously Inland Revenue). Enquiries into SDLT returns and the recovery of unpaid SDLT are now also permitted.
Regardless of whether tax is payable on a property, you are obliged to provide a return to HM Revenue & Customs. If the return is not received within four weeks of the completion of the transaction, you could be issued with a fine.
It is impossible to register a change in the ownership of land without the Certificate that is provided by HM Revenue & Customs following the acceptance of a return.
Stamp Duty for residential land purchases
The amount of stamp duty for residential land purchases depends on several key factors, such as whether the property is a new build home, the economic area and the value of the property. It works on a percentage basis where the percentage payable applies to the whole of the purchase price.
For example, a house priced at £250,000 would attract an SDLT of £2,500, but one of £250,001 would be liable to SDLT of £7,500.
One result of this banding is that it has a distorting effect on the market, because a house is very difficult to sell at prices just above each threshold, for example, £255,000.
Today, there is no stamp duty payable on properties up to £125,000. It is charged at 1% on houses costing between £125,000 and £250,000, 3% on those worth from £250,000 to £500,000, 4% for those sold for more than £500,000 to £999,999.
From April 2011, properties being sold for over £1,000,000 incurred an increased SDLT to 5% and since 24th March 2012, properties over £2,000,000 have incurred SDLT of 7%.
In London, the average asking price for a home is £402,000, which would mean stamp duty of more than £12,000.
For properties over £2,000,000 being purchased by a corporate body, the SDLT will be 15%.
Stamp Duty calculator
Here is a link to MoneySavingExpert's simple Stamp Duty Calculator.
You can also find out the Stamp Duty Land Tax cost of your house move through our Moving Cost Calculator.
Up to £125,000
£125,000 to £250,000
£250,000 to £500,000
£500,000 to £999,999
£1,000,000 to £1,999,999
Stamp Duty in Scotland
Changes to stamp duty in Scotland were announced in Scotland’s budget proposal for 2015.
Stamp duty on properties costing less than £135,000 will no longer be payable, in an aim to help first time buyers.
Under the new system, properties worth between £135,000 and £250,000 will pay 2% stamp duty, and those costing between £250,000 and £1 million will incur a 10% tax. There will be a 12% tax on homes worth more than £1 million.
The changes will be in effect from April 2015.
Disadvantaged Areas Relief
The DAR, or Disadvantaged Areas Relief was abolished in April 2013. Any transaction with a effective date on or after 6th April cannot claim DAR. This had been set up by the Government to encourage property transactions in areas deemed to be at a 'disadvantage'. The DAR was available to approximately 2,000 locations in England, Wales, Scotland and Northern Ireland.
Claims for DAR can be made for transactions that were effective before 6th April 2013, but need to be completed before 5th May 2014. We recommend discussing this with your conveyancing solicitor, as an SDLT return needs to be prepared even if the property qualifies for Disadvantaged Area Relief.
More details can be found here: http://www.hmrc.gov.uk/sdlt/reliefs-exemptions/disadvantaged-areas.htm#3
page last updated October 2014